GLIBA - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to the GCI Liberty 2019 Q2 Earnings Call. [Operator Instructions] Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded August 8. I would like to now turn the conference over to Courtnee Chun, Senior Portfolio Officer and Senior Vice President of Investor Relations. Please go ahead.

Thank you. Before we begin we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Forms 10-K and 10-Q filed with the SEC. These forward-looking statements speak only as of the date of this call, and GCI Liberty and Liberty Broadband expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in GCI Liberty or Liberty Broadband's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures, including adjusted OIBDA and adjusted OIBDA margins. Information regarding the comparable GAAP metrics along with required definitions and reconciliations, including preliminary note in schedules 1 and 2 can be found in the earnings press release issued today, which is available on our website. Now I'd like to turn the call over to President and CEO, Greg Maffei.

Thank you, Courtnee. Good afternoon to all of you. Today, speaking on the call, we will also have GCI Liberty's newly appointed Principal Financial Officer Brian Wendling; we will also have GCI's, CFO Pete Pounds. During the Q&A, members of the team will also be available to answer questions related to Liberty Broadband. So let me start with GCI Liberty and look at the GCI Q2 results. We continue to operate in a challenging difficult economic and regulatory environment. Team has made – somebody out there, there is a getting a feedback here. So if you could mute whoever has got that feedback it would be great. Team has made strategic changes in order to focus on driving value to the core Alaska business and they continue to grow consumer data revenue and improved wireless and video projects – products. They announced an exciting partnership with Erickson to bring 5G to Anchorage by the end of 2020. Turning now to LendingTree, looking at second quarter results. It had strong revenue growth, but experienced margin pressure in the mortgage and personal loans businesses. There are some encouraging signs in the mortgage business and they returned to mortgage growth on a sequential basis. They are responding to challenges by shifting investments forward to take advantage of favorable revenue trends and gain market share, and they are exchanging near-term pressures on margins for improved competitive positioning in the long-term. And finally over Liberty Broadband chart looking at Charter second quarter continues to perform well and realize the benefits of the well executed integration of Time Warner and Bright House. Customer relationships grew by over $1 million. And we ended the quarter with 0.5 million spectrum mobile lines and ahead of most analysts’ forecasts. EBITDA growth and declining capital intensity led to a 50% growth in cable free cash flow and they repurchased $1 billion of stock in the quarter. So with that, let me turn it over to Brian Wendling to discuss the financials.

Thanks, Greg. At quarter end, GCI Liberty had consolidated cash and cash equivalents of $423 million, which includes $76 million of cash at GCI. The value of the public equity securities at GCI Liberty as of today's close was $7.4 billion, which includes our $2 billion interest in Charter, $4.3 billion interest in Liberty Broadband and $1 billion interest in LendingTree. At quarter end, GCI Liberty had total principal amount of debt of $3 billion, which includes a $900 million margin loan on the Broadband shares, the Charter exchangeable debentures and $1.6 billion of debt, including finance leases and tower obligations at GCI. GCI has leveraged as defined in its credit agreement with 6.2 times, compared to a maximum allowable leverage of 6.5 times. Additionally, during the quarter GCI issued $325 million of 6.625% unsecured bonds, due in 2024. The proceeds from this offering were used to call GCI 6.75% unsecured bonds due 2021 in July. You'll note that the proceeds were put into a trust in Q2. So the 2021 bonds are reflected as extinguished at quarter end. As noted in the 10-Q, GCI exceeded the in-current space maximum leverage threshold in terms of its Senior Notes. And therefore doesn't have access to additional funding under the revolver. But we are confident, we have enough cash on hand to operate the business are in compliance with our maintenance covenants. With that, I'll turn it over to Pete Pounds.

Thanks. First looking at RHC matters, we continue to pursue open appeals with the FCC. But we don't have any color at this time on the timing or resolution of those appeals, I'd like to note that the FCC made a decision on August 1 to change how RHC’s support will be calculated starting in the 2021 funding year. It is too early at this time to determine what the effect of this will be. We'll be assessing the possible impacts over time as the methodology and underlying data are developed. On the state economy, the Alaskan government has had and continues to have significant challenges getting to a state budget this year. The impasse at the capital has had a cooling effect on the economy, although the oil and tourism industries continue to perform well. New product launches, since April, we have launched significant new updates to our data, wireless and video products, which has improved both customer value and revenues. You may recall that we were unable to make significant changes for quite some time before our billing system conversion last August and for a period after the launch. These new product updates have been well received so far and we're excited about other launches we have in the pipeline for later this year. In June, we also signed a significant contract with Ericsson to bring five band 5G service to Anchorage over the next year. This should significantly improve both the coverage and speeds of our wireless network. Focus on Alaska facilities, during the quarter, we shut down our Seattle-based business that provided telecom expertise to customers in the lower 48 states. This allows us to focus on what we do best, providing the best telecom network in the state of Alaska. This shutdown, coupled with the very difficult reduction in force in April has allowed us to meaningfully reduce our operating expenses. Operating results, revenue was down by approximately 3% during the quarter, with declines in Rural Health Care and wireless being somewhat offset by increases in consumer data revenues. Adjusted OIBDA was down approximately 5% for the quarter, excluding the $3 million year-over-year decline from the RHC customer that is currently under appeal, adjusted OIBDA would have been flat. As noted in the press release. During the quarter, we made some changes to improve our access to additional satellite capacity. Our access to backup satellite capacity and reduce our monthly cash expenditures. However, in the process of making these positive changes to our network and free cash flow, the accounting treatment changed several of the underlying satellite leases from finance leases to operating leases. The net result is that indebtedness from finance leases declined by approximately $23 million. And our adjusted OIBDA is expected to decline on an annual basis by approximately $6 million. The changes came into effect partway through the second quarter, resulting in the impact to the second quarter adjusted OIBDA of approximately $1 million. Consumer, revenues were down by 2% with declines in voice, video and wireless being partially offset by increases in data as customers migrated to faster, more valuable plans. Business, business revenues were down 5% due to declines in RHC revenue. There were also revenue declines due to wholesale customers moving backhaul circuits off of our network and from the shutdown of our lower 48 business that I mentioned previously. Capital expenditures, for the year, we have invested $63 million in capital expenditures. Expenditures were primarily for wireless network improvements, fiber and hybrid fiber coax improvements. We expect to spend approximately $140 million in CapEx in 2019 . I'll now turn the call back over to Greg.

Thanks Pete and Brian. As a reminder to all of you, we will be holding our Annual Investor Meeting on November 21 in New York. The link to register us on the homepage of our website. We appreciate your continued interest in GCI Liberty. And with that, I'd like to open it up for questions. Operator?

All right, operator. Thank you very much and thank you to our listening audience. We hope to speak to you next quarter if not sooner.